The Green Sheet Online Edition

February 09, 2009 • Issue 09:02:01

Lessons learned from European prepaid

John Goodale, Director of Business Expansion, TSYS Europe, said in an interview with SellingPrepaid that although the European prepaid market has developed quite differently from the U.S. market, U.S. players have learned from Europe's successes and failures.
According to Goodale, the overall European prepaid market is less developed in comparison to its U.S. counterpart. Many factors have hindered the expansion of prepaid programs in Europe, including language barriers, cultural differences and geopolitical issues. Unlike the United States' 50 states unified under a single government, Europe is a conglomeration of independent countries. That socio-political diversity can hinder a program that is successful in one country from being adopted in another.

"The welfare state in the French market is completely different to that in the British market," Goodale said. Free banking services are also configured differently from country to country.

Additionally, most European countries have their own dominant languages and customs. While the United States prides itself on its cultural and religious diversity, one quasi-official language (English) and one loosely defined set of cultural mores are shared by the majority of its inhabitants.

Goodale claimed that is not the case in Europe. "The idea of giving gift cards in Germany is not a particularly big one," he said. "But in the U.K. it's huge. France it's quite big as well. So there are real big differences. Absolutely it's language. But also it's the infrastructure, the culture that people have, the expectations they have of what these products do. And they're all quite different."

In the U.K. and France, large retailers dominate their respective gift card markets. "It doesn't matter if it's supermarkets or department stores or fashion outlets, the old concept of giving a voucher has been replaced by the giving of a card," Goodale said.

"In Germany, the gift voucher concept just didn't really exist that much," Goodale added. "There are some, but not in as big a way as exist in some of the other countries. And it's just that idea. The German people are just less familiar with giving vouchers as presents."

Travel cards are another example. "In some countries some people will take cash, other countries will take traveler's checks," Goodale said. "In some countries there is not much need for currency because they're going into the euro travel [passes]. It's a very difficult market really to come up with a single product that would be appropriate across the market."

Gaining scale

Goodale said these political, economic and cultural barriers impede the prepaid market from reaching its full potential in Europe. Prepaid products in the United States can potentially reach the entire U.S. population. One open-loop gift card program can be rolled out to consumers in every state in the country.

"If I could do the same in Europe, I could get the same sort of scale that I can get in the U.S. market - 350 million," Goodale said. "The entire European Union is 400, 420-odd million people. That gives you scale. It gives you great scale. It means all of a sudden those low-margin products are suddenly very attractive because you're multiplying those low margins by millions of cards. It makes it much more exciting."

But an entire market in Europe might top out at 5 to 15 million consumers, such as an island or a less populous country like the Netherlands. "It limits how much scale you can truly get for a prepaid program," Goodale said.

Goodale believes the solution is in a regional or pan-European market achieved through the passage of legislation and implementation of standards and procedures recognized across many countries. The Single Euro Payment Area (SEPA) is such an initiative. But SEPA has reportedly stalled with the European Central Bank expressing frustration at the lack of clarity in many of SEPA's directives.

A solid base

Despite the fragmented nature of the European prepaid market, the payment infrastructure that gives consumers access to prepaid services is robust across Europe - an area where Europe surpasses the United States, Goodale said.

"Every High Street, every village, town, city, has a terminal somewhere in it where you can pay a bill, top up a mobile phone," he said. "And therefore extending those organizations to top up a prepaid card is very simple. And all of a sudden you get thousands and thousands of additional outlets by talking to just one organization. So that's a very strong set of predefined mechanisms to update cards."

Through those terminal networks, prepaid services such as money transfers can be facilitated at low cost for providers and consumers, Goodale added.

Another area in which the European prepaid market has a clear advantage over the United States is in mass transit applications.

"Transporting in Europe is big, particularly in some of the major cities: London, Rome, areas like that," Goodale said. "And the adoption there of contactless payments runs into millions of cards.

"The idea of rolling that out into much larger-scale programs is much more feasible here than it is probably in some of the U.S. markets. I think that also extends in just the use of transporting in general. There's a lot of use in trains. There's a lot of use in metro. And there's good integration between many of them."

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